The Coca Cola Company (Coke) and Pepsico (Pepsi) must independently decide how much to spend on advertising this year (low, medium, or high advertising expenditures). Each firm's decision will affect its own profits, as well as profits of its competitor. The following payoff matrix shows the possible outcomes for this game between Coke and Pepsi. Here Coke is the row player and Pepsi the column player. Coke's available strategies are listed on the left (it can choose the rows labeled Low, Medium, or High). Similarly, Pepsi's available strategies are listed at the top (it can choose the columns labeled Low, Medium, or High). Interior cells show the profits (measured in millions of dollars) for each firm, with the profits for the row player (Coke) listed first, followed by profits for the column player (Pepsi). For example, if Coke chooses a low advertising budget while Pepsi opts for a medium budget, then profit will be $7 million for Coke and $10 million for Pepsi.
Pepsi's Strategies
Low Medium High
Coke's
Strategies Low 9, 11 7, 10 5, 12
Medium 8, 6 8, 7 8, 10
High 10, 4 9, 5 6, 6
If a bit of industrial espionage allows Coke to learn that Pepsi intends to choose a low advertising budget, what is Coke's profit-maximizing decision?